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Future makes enormous loss

£33m rights issue

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This morning Future Network requested that its shares be suspended on the London Stock Exchange. This afternoon, it has revealed the reason - it did not want a false market to develop in advance of a "significant announcement".

The news from the Bath, UK publisher of games, PC and hobby mags, is that it is in "advanced" talks to refinance the business. At the close of play today the company announced a six-for-five rights issue intended to raise £33m net of costs. This is priced at 20p per share. Also the company has secured a five-year revolving debt facility.

Will this be enough to ensure that Future can avoid lurching from crisis to crisis, Scoot-style? It will be interesting to see what the market makes of the firm's capital-raising plan when share trading resumes Monday.

Future carries a lot of debt, £78m or so, much of it incurred in in last year's mad dash for growth. In March 2000, at the height (and last gasp) of the bull market, the company announced its intention to increase its annual capital spend to £25m, from £11m, the year before.

Now with falling share prices, and a core business that's not very profitable right now, the company's capital structure is far too small to support this debt burden. At its peak early last year, Future's share price was more than £9. At the time of suspension today, the shares were languishing at 24.5p, equivalent to a market cap of £35.121m

Games Publishers Play

A lot of hope is riding on the launch of the official X-Box magazine, out next month in the US, and early next year, in Europe.

And surely games publishing ad revenues, of which Future is a major beneficiary, will pick up, after what has been a bloody awful year.

Future cites forecasts from trade rage Screen Digest that "over 100 million consoles will be sold worldwide between 2001 and 2004, and that the UK installed base of next generation hardware will reach 3.5 million units in the UK by the fourth quarter of 2002".

But what if X-Box is not so popular; and what if the games publishers refrain from taking their hands out of their pockets with gay abandon of old?

Results

Future Network today announced its interim results. We'll go through the real, horrible figures first. And then we'll move onto the adjusted-figures for continuing operations (which don't read quite so bad).

For the half year to June 30, 2001 the company turned over £90.5m (2000: £110.2m) and produced an absolutely enormous loss before tax of £106.8m (2000: £14.2m). The majority of this was a non-cash loss, with a goodwill write-down of £70m, "following impairment review and disposal". This is an accounting (as opposed to money-out-of-the bank) loss, but it is still represents a very big hole in the balance sheet.

The headline loss also contains losses before interest, tax and amortisation from discontinued operation of £14.5m; first-half restructuring costs of £5.3m; and refinancing costs of £2.6m.

Now for the adjustments for continuing operations. Revenues were £70.3m (2000: £78.4m)and the operating profit was £1.9m (2000: £5.9m). The continuing business probably recorded a loss too, after its share of the refinancing costs are taken into account.

During the last financial year, Future implemented a series of swingeing cutbacks, closing down 39 magazines; withdrawing from the Netherlands and Germany; reducing staff numbers by 39 per cent to 1,200; shutting down most of its Internet operations.

The company also sold Business 2.0, its flagship US title, to AOL Time Warner for $68m upfront and a five-year royalty deal contingent on revenue performance. ®

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